3. Raise Your Prices
It is a huge mistake to try to differentiate on price. There are way richer people who will always beat you on price. And if price is your best value proposition, you aren’t adding any value. You are redundant. You are a rent-seeker.
The right customers won’t care about your price. But you have to add value in other ways. In my case, consumers are willing to pay higher prices, so retailers are, too.
Why do consumers pay higher prices for my products? We never skimp on quality. Consumers & retailers can tell that our products are the grey goose and our competitors’ is the popov / congress. We don’t ship anything we’re not proud of. We take care of you if something goes wrong. You can expect a consistently good experience. Our brands & packaging are sick. We communicate value propositions effectively in our copy. You can always reach our customer service. Etc etc.
We couldn’t offer all of these value propositions in the beginning, but we continue to re-invest profits in better outcomes for our customers.
Low-margin customers aren’t worth worrying about, at all. If you really know the true costs of running your business, you know that after pricing in employees, taxes, rent, commissions, advertising, legal, utilities, travel, etc— your true costs are a LOT higher than simply the cost of product. And what good are you to your customers if you fail to realize this and go out of business?
If you aren’t making 30% to 40% profit after everything (including a reasonable hourly rate for yourself), how will you grow? How will you whether storms like changes in consumer demand and new regulations?
Charge what your product is worth, not what maximizes sales. Do so unapologetically. Don’t even price your products on a set profit mark-up. Certainly make sure you can make healthy profits at a minimum, but charge what the product is worth. Margins will vary across SKU’s and that’s fine.
You lower your prices 10% to get a couple more customers and now all of your customers pay that lower price. Find more customers willing to pay your prices— don’t lower your price.
Even when you lower prices— prospective customers don’t have a 6th sense for it. They don’t just come flocking. You still have to sell. You may as well charge what your product is worth.
The biggest mistake you can make is creating a truly great product and underpricing it. Most of your prospective customers don’t know enough about your product to explain the value to someone else (mitigate this with better copy & positioning). This is why people use price as an adjective to tell others how good something is. They say “I bought an $80 hoodie” to communicate that the hoodie was of exceptionally high-quality. Your price should align with the quality of your item, as should the brand, packaging, etc.
Along the same vein— price serves as one of the strongest placebos. Your price alone is the biggest signal of quality, even before brand, packaging, etc.
Put a shitty product in a great packaging with a great brand and a high price— people will assume exceptional quality. Most people will even after trying the product— Price is that strong of a placebo.
The opposite is also true. Exceptional product with a shitty brand, shitty packaging, and low price will almost always be perceived as poor quality, even after trying it.
Want to maximize revenue on price-indifferent customers, but sell to price-conscious buyers, too? High single unit pricing, lower multi-pack pricing.
Lastly, people care way less about your prices than you think. Deliver equivalent value to the price you charge. Don’t worry that other people sell similar products for lower prices.